ANALYST REPORT
■ We downgrade our ratings on Honam Petrochemical and Hanwha Chemical to
Underperform from In-Line on significantly increased earnings downside risks, while
maintaining our Outperform ratings on LG Chem and Kumho Petrochemical.
■ We had expected a petrochemical uptick until 3Q12 on (1) gradual demand recovery in
China in 2Q12; (2) strong oil prices; and (3) heavy maintenance shutdowns in 2H12.
■ What we missed was exceptionally weak China demand YTD, and now it is difficult to be
bullish again, given (1) resumption of plants under maintenance; (2) additional capacities;
and (3) significantly decreased restocking appetite from end users witnessed during 1H12.
■ Although share prices have already corrected heavily on narrowed petrochemical product spreads, earnings downside risks are not fully priced in the share prices yet for Honam and Hanwha, in our view. However, we believe the long-term upside potential for LG Chem and
Kumho are greater than short-term downside on weak 2Q12 earnings.
